Ever-Glory International Group, Inc.
Q4 2015 Earnings Call Transcript

Published: 28 Mar 2016

[Operator:]

Good day and welcome to the Ever-Glory International Group’s Fourth Quarter and Full Year 2015 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to management. Please go ahead.

[Wilson Bow:]

Thank you, operator. Hello everyone and welcome to Ever-Glory International Group’s fourth quarter and full year 2015 earnings conference call. The company distributed its earnings press release earlier today and you can find a copy on Ever-Glory’s website at http

[Yihua Kang:]

Thank you, Wilson. Good morning to our investors in the U.S. and good evening to our investors in Asia. Thank you for joining our fourth quarter and full year 2015 earnings conference call. During 2015, soft global economy and Chinese retail conditions led to a challenge and impacting sales in both our wholesale and retail businesses. I will first spend a few minutes to discuss the performance and later the development of our retail business. We have four distinguished ladies apparel brands La go go, Sea To Sky, Velwin, and idole along with a self operated nationwide retail store network in China. Each branch [indiscernible]. Our first brand La go go is inspired by special style from Paris and target fashionable urban ladies within an age growth of 23 to 28 years. The brand name La go go is different from the initial of six words, love, arts, green olive branch, glory and original, which are the key positions of the branch to show case urban women’s confidence through efficient fashion touch. We also introduced two new branch in 2014, Sea To Sky and Velwin, and one new brand idole in 2015, which have received positive feedback from our ladies customers. Sea To Sky target trending girls between 18 to 25 years. This [indiscernible] use with American design to encourage various young girls to chase the [indiscernible] women between 28 to 33 years who have the passion and love for travel, family, and fashion. Idole targets youth, ladies professionals between the 28 to 35 years and outline the unique and modern temperaments of leaders in the work force. Our ability to respond quickly to much trends and customer needs and our quick turnaround in design and production are our key capital achievements in the retail segment. We have collaborated [indiscernible] in France and Italy and also sit up for designated design team with over 20 members for each brand in Shanghai. Recently, we hired a fabric top manager of [indiscernible] retail business in Shanghai. We look forward to close working with her to design and develop the ladies fashion trend and meet the evolving needs of our target customers. As we remain focused on our retail network expansion we opened 210 ladies stores in China during 2015. In addition, to fully enhance our profitability and improve same store sales and performance we closed 270 - and the performing retail stores throughout the year. We also remodeled or relocated 216 stores in 2015, which will provide us with improved more visible and accessible operations. Mainly at the end of 2015, we had a nationwide network of 1159 retail stores in China. Mainly to [indiscernible] a store within a store in large mid-or-tier department stores located in over trending performance with a goal to further in tier 2 and tier 3 seating. Our deep understanding of low core customer needs anticipates bringing us big collected advantages over burning brands. Meanwhile, our experience in wholesale business combined with our international portion behind our competitiveness in attracting international tenant fabric selection and production, operating measurements and brand measurements with a strategy on private style and price [indiscernible]. We aim to become Chinese women’s choice of wear in their everyday life. And in the age of 10 to 15 our inventory remained at a high level, thanks to our effective inventory management system. We were continued to force, improve our inventory through our prior and quick reaction system. Our quick reaction system consists of [indiscernible] quick response and flexible supply chain management. In [indiscernible] the most popular product item and increasing production and permanently leverage two stores. In addition to our retail network, we also distribute product to own China’s popular e-commerce platform including [indiscernible]. Online sales in 2015 recorded $17.8 million U.S. dollar 43.2% increase year-over-year, and accounted for about 80% of retail revenue in 2015. Chinese consumers have become a customer tool making [indiscernible] e-commerce fine method due to its [indiscernible]. We believe our e-commerce strategy were great unique opportunity for us to increase sales volume. Furthermore, we plan to develop our own online platform and we are up there, the much in due course. The rapid growth of e-commerce social media cellular payments and mobile devices along with our strong design product development and supply chain measurement help us to meet the damage from China’s growing community of online shops and attending our product reach to more customer. Now turning to our wholesale business, our wholesale business provided customer-wide one-stop supply chain acceleration with reach attained highlights by our product development. Global retail material sourcing quality control and manufacturing measurement which continued to gain recognition allow high quality medium to high end customers both in China and the world in 2015. As a leading global average supply chain salvation provider with a four month old medium-to-high end casual wear, outer wear and sportswear brand. We have developed [indiscernible] supply chain that allows and a deep understanding of the retail ladies [indiscernible] allowing the improvement for our customers product development sourcing and logical gestures. Through our [indiscernible] supply evolution system we have also explained long-term relationship with [indiscernible]worldwide who adopt best in class product R&D capital and share our commitments in high quality savings and faster delivered speech. Both domestic and international customers have recognized our effort. At the end of 2015, we have over 100 domestic additional apparel brand, including best seller growth sections [indiscernible] allowing 54.3% of our wholesale sales come from customer in China in 2015 with the remaining come from customer in Germany, the United Kingdom, and other European customers and United States and Japan. Going forward, we are working in order to attract high quality customers with a focus on medium-to-high end brand through our continued growth initiative in global sourcing network at Beijing, overseas lower cost manufacturer at Beijing and the product is designed and developed. Looking ahead, while we expect economic pressures to persist, we remain optimistic regarding our future growth opportunities. We expect to open 200 to 250 new stores in 2016 and plan to relocate or remodel 150 to 200 stores while we continue to coordinate underperforming stores. With a wholesale strategy focused on mid-to-high end customer base expansion, supply chain management improvement and the manufacturing process optimization, and a retail strategy focused on retail store management and customer-driven product development, we believe our efforts will support the long-term sustainability of our overall business. Now, I would like to turn the call to our Chief Financial Officer, Mr. Jiansong Wang, to give you more details on our financial highlights.

[Jiansong Wang:]

Thank you, Mr. Kang, and hello to everyone on the call. Now, I’d like to provide a brief overview of our financial results for the fourth quarter and the full year 2015. Please note that all numbers I will discuss today are in U.S. dollars unless otherwise noted. First, let me walk you through fourth quarter financial results. Total sales for the fourth quarter of 2015 was $129.2 million, an increase of 0.5% compared with $128.5 million in the fourth quarter of 2014. This increase was mainly due to a 4.4% increase in total sales partially offset by a 2.9% decrease in retail sales. Retail sales from the company’s branded fashion apparel retail division decreased by 2.9% to $57 million for the fourth quarter of 2015 compared with $58.9 million for the fourth quarter of 2014. This decrease was mainly due to the decrease in same-store sales and store numbers. We had 1,159 retail stores as of December 31, 2015 compared with 1,201 retail stores as of December 31, 2014. Wholesale sales from the company’s wholesale business increased by 4.4% to $52.2 million for the fourth quarter of 2015 compared with $59.6 million for the fourth quarter of 2014. This increase was mainly due to increased sales in China and Europe partially offset by decreased sales in Germany, the United Kingdom, the United States and Japan. Total gross profit for the fourth quarter of 2015 increased by 9.1% to $36.3 million compared with $33.3 million for the fourth quarter of 2014. Total gross margin increased by 220 basis points to 28.1% compared to 25.9% for the fourth quarter of 2014. Gross profit for retail business increased by 5.1% to $24.7 million for the fourth quarter of 2015 compared with $23.5 million for the fourth quarter of 2014. Gross margin increased by 280 basis points to 36.9% compared with 34.1% for the fourth quarter of 2014. Gross profit for wholesale business increased by 18.6% to $11.6 million for the fourth quarter of 2015 compared with $9.8 million for the fourth quarter of 2014. Gross margin increased by 220 basis points to 18.6% compared with 15.4% for the fourth quarter of 2014. Selling expenses for the fourth quarter of 2015 increased by 0.5% to $19.5 million or 15.1% of total sales compared with $19.4 million or 15.1% of total sales for the fourth quarter of 2014. The increase was mainly due to the increased average salaries as well as the increased store operation and the marketing expenses associated with the promotion of the retail brand. General and administrative expenses for the fourth quarter of 2015 increased by 33.4% to $12.1 million or 9.4% of total sales compared with $9.1 million or 7.1% of total sales for the fourth quarter of 2014. The increase was mainly due to an increase in the number of wholesale and retail management personnel, and the depreciation and amortization of the new logistic center. Income from operations for the fourth quarter of 2015 decreased by 2.5% to $4.7 million compared with $4.8 million for the fourth quarter of 2014. Net income attributable to the company for the fourth quarter of 2015 increased by 42.3% to $4.7 million compared with $3.3 million for the fourth quarter of 2014. Basic and diluted earnings per share were $0.32 and $0.22 for the fourth quarter of 2015 and 2014 respectively. Now, let me talk about the full year 2015 financial results. Total sales for the full year of 2015 were $421.4 million, a decrease of 8.4% compared with $460.1 million in the full year of 2014. This decrease was mainly due to an 8.1% decrease in retail sales and 8.8% decrease in wholesale sales. Retail sales from the company's branded fashion apparel retail division decreased by 8.1% to $224.8 million for the full year of 2015 compared with $244.7 million for the full year of 2014. This decrease was mainly due to the decrease in store numbers and same-store sales. Wholesale sales from the company's wholesale business decreased by 8.8% to $196.6 million for the full year of 2015 compared with $215.5 million for the full year of 2014. This decrease was mainly due to decreased sales in Germany, the United Kingdom, Europe and Japan, partially offset by increased sales in China and the United States. Total gross profit for the full year of 2015 increased by 5.8% to $129.3 million compared with $122.2 million for the full year of 2014. Total gross margin for the full year of 2015 increased by 410 basis points to 30.7% compared with 26.6% for the full year of 2014. Gross profit for retail business increased by 10.2% to $94.4 million for the full year of 2015 compared with $85.6 million for the full year of 2014. Gross margin for the full year of 2015 increased by 700 basis points to 42% compared with 35% for the full year of 2014. Gross profit for wholesale business decreased by 4.7% to $34.9 million for the full year of 2015 compared with $36.6 million for the full year of 2014. Gross margin for the full year of 2015 increased by 70 basis points to 17.7% compared with 17% for the full year of 2014. Selling expenses for the full year of 2015 increased by 13% to $76.5 million or 18.2% of total sales compared with $67.7 million or 14.7% of total sales for the full year of 2014. The increase was mainly due to the increased average salaries as well as the increased store operation and marketing expenses associated with the promotion of the retail brand. General and administrative expenses for the full year of 2015 increased by 9.9% to $36 million or 8.5% of total sales compared with $32.7 million or 7.1% of total sales for the full year of 2014. The increase was mainly due to an increase in the number of wholesale and retail management personnel, and the depreciation and amortization of the new logistics center. Income from operations for the full year of 2015 decreased by 23% to $16.8 million compared with $21.8 million for the full year of 2014. Net income attributable to the company for the full year of 2015 decreased by 17.1% to $13.6 million compared with $16.4 million for the full year of 2014. Basic and diluted earnings per share were $0.92 and $1.11 for the full year of 2015 and 2014 respectively. As of December 31, 2015, we had approximately $22.7 million of cash and cash equivalents compared with approximately $34.1 million as of December 31, 2014. We had working capital of approximately $53.7 million as of December 31, 2015 and outstanding bank loans of approximately $44.8 million as of December 31, 2015. While the market weakness impacted our top line results, we enacted several politic initiatives throughout the year including optimizing our retail store network, increasing our marketing and the promotional activities, and developing our online channels. We also delivered an improvement in gross margin in 2015 compared with last year. Going forward, we believe our efforts will help ensure the growth of our overall business over the long run as market conditions improve, and we continue to remain focused on maximizing our product ability through expenses management. This concludes my prepared remarks for the fourth quarter and full year 2015. Operator, we are now ready to take questions.

[Operator:]

Thank you. [Operator Instructions] And we’ll move to our first question from [Jon Sheehan], a private investor. Please go ahead.

[Unidentified Analyst:]

Hello, everybody. Thank you for taking my call. Congratulations on the strong results and thank you for the detailed management comments. First, I’d like to ask about the performance of your new brands, how many stores do you have over each brand and are the brands profitable right now? Or do they need to grow more before they make a contribution?

[Wilson Bow:]

Let me translate. So in 2014, we introduced two brands, one is Sea To Sky, another is Velwin. For Sea To Sky, we have now around 70 stores around China and for Velwin, it’s also around 70 stores. For other stores, the single store profit is performing very well but we are still in the stage of initial investments. So if we [indiscernible] the operating expenses, some stores are still now profitable. But we are still working on it, it’s still at the initial investment stage. And in 2015, we introduced our brand, idole. We now have around 28 stores around China and for other new brand we introduced to the market, we still stick to our multi-branded strategy we hope to clear two different customer needs. Hope that answers your question.

[Unidentified Analyst:]

Thank you. That’s a good answer. Then can I ask, do you feel that 2016 will also be a difficult year in the market or what are your expectations for general market conditions in 2016?

[Wilson Bow:]

So the translation is, in 2016 I agree that both in China and internationally, the market situation will be still tough. However, it also provides us enough opportunities especially since we have introduced the new brands you can provide us with additional opportunities. Traditionally in China it is all about competition in pricing, but I think by our distinguished brands we are able to bring new values to our customers.

[Unidentified Analyst:]

Okay, thank you. And can I ask, do you have a VIP loyalty program for your best customers and how is it going?

[Yihua Kang:]

So, yes we do have that. In the second year of last year, we introduced the point system for our brands. So, our customers can use their points to transfer to different products or things.

[Unidentified Analyst:]

Okay, thank you. And my last question is, I’m impressed with all of the achievements of the company, do you have any expectation to take some action that would share the success of the company with your investors such as payment of the dividends?

[Yihua Kang:]

So, we haven’t raised the money since we go public and for all these years we have been supporting our development through cash flow from operations. So, we will continue to improve our profitability and use that to our operation.

[Unidentified Analyst:]

Okay, thank you. That’s all my questions. Thank you for the detailed information and detailed answers.

[Yihua Kang:]

Thank you.

[Operator:]

[Operator Instructions] And we have no further telephone questions at this time, I would like to turn the conference back over to management for any additional or closing remarks.

[Yihua Kang:]

Okay, thank you ladies and gentlemen for attending Ever-Glory’s fourth quarter and full year 2015 earnings conference call. We are looking forward to talking with you next quarter. If you have any additional questions, please don’t hesitate to contact our investor relations department or the [EG] Group. Good bye. Thank you.

[Operator:]

And this concludes today’s call. Thank you for your participation. You may now disconnect.